Reply to College Endowment Tax Hike

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[quote=Anonymous][quote=Anonymous]It looks like the tax for colleges with large endowments will be increased from 1.4% to 20%. While this may be a popular policy idea among the general public, I'm concerned that the actual outcome will be bad for college students that need financial aid. If Harvard is taxed at a rate of 20% of net investment income, they would owe around a billion dollars in endowment taxes each year (40k per student). [b]The entire financial aid budget for Harvard is only around 800 million, so this tax would effectively eliminate Harvard's ability to offer financial assistance to low-income students.[/b]
https://www.politico.com/live-updates/2025/05/09/congress/republicans-eye-massive-expansion-of-college-endowment-tax-00339060[/quote]

This part is not quite accurate. Undergraduates receive about $260 million of this, but almost all of it is absorbed through lower operating revenues (it is “net student income”) rather than through a specific distribution from the endowment.

A higher tax would reduce the endowment’s distribution to the operating budget, but that could be absorbed through multiple channels. Given the earmarking of much of the endowment, those specific areas would have to absorb much of the hit (professorships, certain proframs, research, and, yes, some scholarships but more of the “named” variety than financial aid). And the freely usable part would probably hit staff as pay and benefits are half of the operating budget.[/quote]

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